The Hindu Business Line : Board moots rating for financial planners

THE Financial Planning Standards Board (FPSB) India, faced with inconsistent regulations that focus on product manufacturers (read: mutual funds, insurance companies and the like) and not on the advisory process, is exploring the possibility of promoting ratings that will set apart good planners from the bad ones.

The Board, which hopes its proposal will stimulate growth of professional entities and improve overall compliance, has underlined the need for rating standards in the Indian context. A `rating index', it feels, will measure planners on the basis of laid-down criteria. It will also indicate the relative strengths of a financial planner, individual or otherwise.

"Given the varied nature of financial advisors and an absence of universal standards in this country, there is a clear need for introducing a system of ratings," said Mr Ranjeet S. Mudholkar, CEO, FPSB India, adding that the Board wants consumers to receive "competent, ethical and consistent" advice.

Serving as backdrop for such a need is a rather unique situation, marked by individuals and firms that brand themselves as financial planners, wealth managers, private bankers, portfolio advisors and so on. Their numbers, according to one estimate, range from two to ten lakh. While some are indeed regulated, the regulations in force are not homogeneous. For a financial planning firm, the rating methodology should address a number of parameters. These include: organisation structure, risk management system, policy on investor interest, policy on compliance and disclosure and financial strength.

The management's policy on ensuring fair dealing for clients, handling of grievances and arbitration matters, maintaining of client confidentiality too are important factors on this front. Further, a firm's product basket and its IT infrastructure may also be assessed to ascertain its comprehensiveness and efficiency.

"It is difficult to distinguish independent advisors from regulated entities," Mr Mudholkar said while referring to the fact that each segment of the industry operates separately. Also, there are different regulators - one each for mutual funds, insurance and banking - and multiple distribution channels. In this context, the Board has tried to make a distinction between an `advisor' and a `seller'; it has explained that existing certifications by the IRDA and the AMFI are aimed at sellers, not advisors.

Not by any condition

The demand for the rating product should come from within the market itself and not spurred by any condition imposed on the industry, it is suggested.

As FPSB puts it, the relative maturity of the markets and a self-imposed code of discipline should lead to an increase in such demand. Accordingly, more and more players will feel the need to get them rated.

A similar approach has been followed by the rating agencies while introducing concepts such as corporate governance ratings. Companies that seek higher governance standards are expected to secure ratings on their own.

The rating product mooted here is also expected to shore up the interests of investors as a highly-rated entity is likely to be more concerned with their protection.

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